Bank Financial Statement Analysis

The aim of this training is to provide participants with an understanding of the financial statements of a bank, both the banking book and financial instruments and of the regulatory environment.

• Bank Financial Statement Analysis - Outline - download

Session 1

Financial Statement Analysis for Banks

The aim of this session is to provide participants with an understanding of the financial statements of a bank. The focus is on the banking book and financial instruments. The reporting and valuation of derivatives is also discussed.

• Presentation of a Bank’s Financial Statements
  
  • The Balance Sheet or The Statement of Financial Condition
  • The Income or Profit and Loss Statement
  • The Statement of Other Comprehensive Income
  • The Statement of Changes in Shareholders’ Equity
  • The Cash Flow Statement
• Accounting for loans
  
  • Amortized cost methodology
  • Gross loans and net loans
  • Loan loss impairment applies to amortized cost and FVTOCI mandatory fixed income instruments
  • Incurred losses (IAS 39) replaced by expected losses (IFRS 9)
  • Three stages process to determine impairments
    
    • Stage 1: “12-month expected credit losses” with effective interest rate on gross on gross carrying amount
    • Stage 2: “life-time expected credit losses” with effective interest rate on gross on gross carrying amount
    • Stage 3: “life-time expected credit losses” with effective interest rate on gross on amortised costs

• Financial Instruments Classification & Measurement
  

• Presentation of the three different IFRS 9 categories
  
  • Amortised Costs;
  • Fair value through Profit & Loss (FVTPL);
  • Fair value through Other Comprehensive Income (FVTOCI)
• Accounting treatment determined by (i) business model (ii) nature of cash flows
• Decision tree to decide on classification of financial instruments
• Balance sheet and P&L calculation of a bond at amortized cost
  
  • Based on the Internal Rate of Return (IRR) of future cash flows
  • Treatment of fees in the IRR calculation
• Balance sheet and P&L calculation of a bond at FVTPL and FVTOCI
  
  • Effective interest rate method for interests (same as amortised costs)
  • Unrealised gain based on NPV at current yield of future cash flows
• Fair value assessment
  
  • Level 1 based on unadjusted quoted price
  • Level 2 based on quoted price in inactive markets or observable model input
  • Level 3 based on unobservable but significant inputs to the overall value
• Hedge Accounting
  
  • Qualification for hedge accounting
  • Different types of IFRS 9 hedge accounting, same as IAS 39, except for time value of money and forward points in foreign exchange forward
    
    • Cash flow hedge
    • Fair value hedge
    • Net investment hedge for foreign subsidiaries
  • Accounting treatment for time value of money for options: a two-step process through OCI
  • Accounting treatment for foreign currency forward points in OCI
  • IFRS 9 hedge accounting more closely aligned to risk management policy
    
    • Removal of hedge effectiveness criteria (80% to 125%)
    • Extends eligibility of risk component to include non-financial items
    • Permits aggregate exposure that includes a derivative to be eligible hedged item
    • Group of items and a net position (e.g. assets & liabilities or forecast sales & purchases) hedged collectively as group
  • Netting derivative assets and liabilities

Case study: Review the financial statements of Barclays

Session 2

Fundamentals of Regulatory Capital

Throughout this module, participants review the current regulatory requirements, in particular Tier I and Tier II capital ratios and understand the computations behind all regulatory ratios.

• Overview of regulatory framework
• Overview of Basel I, II and III
• MREL and TLAC
• Overview of calculating available and required capital
  
  • Common Equity Tier 1 (CET1), Tier 1, Tier 2 and Total capita
  • Key reconciliation items from IFRS Book Equity to CET1: minority interests, deferred tax, changes to investment portfolio, etc.
• Overview of calculating risk weighted assets (RWAs
  
  • Credit risk RWAs
  • Counterparty risk RWA
  • Market risk RWAs
  • Operating risk RWAs
• Overview of key capital, liquidity and funding ratios
  
  • Tier 1 and total capital ratios
  • Leverage ratios
  • Liquidity coverage ratios (LCR)
  • Net stable funding ratios (NSFR)

Case study: Review Tier I , Tier II all other regulatory ratios for Barclays

• Financial analysts in investment banks (FIG departments)
• Lateral hires in investment banks (FIG department)
• Junior equity research
• Junior investment managers
• Strategy and corporate development bank professionals
• All other interested Finance and banking professionals

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Certificate of completion

Digital certificate - Included